A few days after the election no-one could call, but with an outcome that resulted in a collective sigh of relief from the industry, BNP Paribas Real Estate convened a meeting of political commentators, pollsters, economists, landlords and agents to discuss life under a Tory majority.
Because the housing market formed such a large part of each of the parties’ pledges in their election manifestos in the run up to 7 May, it was not surprising that the need for the new government to do something radical to solve the lingering crisis was high on many of the panellists’ agendas.
Economist Roger Bootle from Capital Economics labelled the housing market as “one of the great British disasters”.
“It’s ironic because it is not thought that way by most people, who think, ‘isn’t it wonderful, prices keep going up and it acts like a cash card’, but from the point of view of economic efficiency and human happiness, it is a disaster,” said Bootle.
He added: “It is a disaster that Ed Miliband got wrong. He said that the disaster was caused by the private sector, rapacious landlords, rapacious builders and developers. But in fact the disaster was caused by government. It is the suppression of market forces that has caused this disaster. We need to see more market and less government.”
Those in the room representing the private sector said they were ready to fix the problem, but were keen for dialogue and movement from government.
Gary Yardley, managing director and chief operating officer of London developer and investor Capital & Counties, said: “There is no money for the public sector to address the fundamental issues and I think some of those will have an important impact on the property market.
“We have a housing crisis in London. Supply is just not going to meet demand unless there are some courageous actions by government around increasing that supply of housing across the spectrum – social as well as private.”
He thought that government needed to act quickly while it still had the power and ability to influence.
Killian Hurley, chief executive of residential developer Mount Anvil, called for more intervention from the new government as he believed that with average house prices in the capital at £500,000 the London residential market was not sustainable.
“We’ve got a real divide in London,” he said. “We’ve got a world-class city, but how do we maintain a world- class city? Simplify planning. Simplify the level of affordable housing that needs to be provided because the vast majority of Londoners are not benefiting from the Chinese, the Russians, from everybody else who is buying into our market. We need to increase supply but we are not going to do it on our own, so we need some radical government intervention.”
“Private enterprise is all up for having a real discussion about proper percentages, proper social housing and proper solutions to this issue,” added Yardley. “We need to see that government on both a local and a regional level in the form of the mayor, can be brave and do the right thing.”
That right thing appears to be a continuing reform of the planning system.
“We’ve got to stop playing the roulette wheel,” said Clearbell Capital senior partner Manish Chande. “With planning the way it is at the moment, the reason we are all so nervous is because it is black or red on the roulette wheel in the hands of local nutters!”
“We have got to put planning back into the hands of the professionals,” added Hurley. “Pay them properly, resource it properly and let them make planning decisions based on the next five to 50 years, not on the next local election.”
Yardley called for a “Simon Milton” approach to planning. The former leader of Westminster city council, who died in 2011, believed that localism in the capital was about being local for London, not for individual boroughs.
“We need to have a view that encompasses the whole of London, not just that little bit of London that is yours,” said Yardley. “We have to let the GLA have some proper powers to address the fundamental issues, the big-scale issues.
“We can’t have a situation where localism turns into nimbyism and stops development. We need to see large-scale opportunity areas come forward quickly.
“Some of those don’t need public sector money at all, they just need clarity, and the public sector needs to let us get on with it.”
BNP PRE chairman and former Tory MP Steve Norris agreed. He said: “We do need to change the power of the local authority from the power to make individual capricious decisions to the power, periodically, to set a more zonal approach to planning, within which the concept of permitted development would be a much more substantial element.
“In other words, we don’t have to spin the roulette wheel, which is what we all believe keeps the process of planning behind where it should be.”
While the residential market continued to raise cause for concern, the non non-dom bashing Tory administration has left investors, developers and advisers feeling confident.
“In the short term, the market will become even stronger with more perception of stability,” said BNP PRE chief executive John Slade.
Yardley agreed: “I think there is such a weight of money that wants to come to invest in London that we are going to see yields come in. It is going to be an issue because London is going to become very expensive commercially. But it just illustrates that London is the capital of the world.
“The responsibility of the government is to make sure that it continues to be seen as that. We have got to address all the issues – economic and residential – to make sure we maintain that position.”
Bootle on the post-election economic prospects
The UK’s economic performance since the crash has been pretty extraordinary, according to Roger Bootle, managing director of Capital Economics. “The fiscal crisis is over,” he said. “The worry of a few years ago that we were facing some Greek- or Italian-style crisis of public finance is finished.”
He said that the combination of austerity measures and economic growth meant that the country’s debt ratio was now on its way down, which was enough to boost confidence in the markets.
However, Bootle warned that government had been focusing on the wrong deficit and that he hoped that the new administration would look at fixing the current account deficit – the gap between what the country exports and imports.
“We need to shift the balance way from consumption to investment and exports,” said Bootle. “The eurozone is doing badly, which makes exports difficult. And the pound is simply too high. We need the exchange rate to be lower in order to make our exports more attractive and to price out imports. When that happens, it will be a great boost for the economy.”
Turning to property, Bootle said that commercial property looked to be fair value, potentially even attractively valued.
Residential, on the other hand, looked extremely expensive, he said, adding that while the mortgage payment to take-home pay ratio was currently tracking the historic average, this was during a period when interest rates were at their lowest level for more than 400 years.
“If it is not at a point where it can be averagely affordable now, when can it be?” he asked.
